Final report on land-based financing for urban infrastructure in sub-Saharan African cities

Contents

Abstract

The report highlights the need for improved arrangements for financing
urban infrastructure, given how dysfunctional infrastructure systems are
in so many sub-Saharan African cities. Using a fairly broad definition,
land-based financing is being applied quite widely in the form of
in-kind contributions by property developers. However, instruments
conceived typically as some sort of tax or fee for infrastructure have
been ineffective in creating infrastructure improvements. Overall, the
scale of finance made available through these means, in relation to the
need, remains small.

Yet there is potential to improve the financing of infrastructure
through land-based financing measures. Development charges have a big
part to play considering how rapidly cities are urbanising. As with any
land-based financing instrument, though, the success of a development
charges system will depend on how conducive the policy and governance
frameworks are to its operation in a particular country or city.

The conclusions are negative in relation to the potential of land-based
financing to fund infrastructure serving poor households. At best,
land-based financing should be aimed at maximising funding for
infrastructure to commercial and residential property for middle- to
high-income households. This will at least avoid having to subsidise
infrastructure for these developments and hence release other funding
sources for infrastructure for the poor, including slum upgrading. It
is, however, far-fetched to think that funding all middle- and
high-income residential and commercial or industrial developments’
infrastructure through land-based financing will result in enough money
to finance infrastructure to support low-income development. Even with
these measures in place, a severe shortage of funding for services to
poor households will remain. Land-based financing, which ensures that
property development for the well-off pays its own way and is not
effectively subsidised by the state, is a necessary step towards freeing
up finance for capital investment in infrastructure that serves the
poor.